On Friday, oil prices experienced a decline, yet they remained over 7% higher for the week. Meanwhile, U.S. diesel prices reached an unprecedented peak as concerns about supply disruptions due to attacks on vital shipping routes in the Middle East lingered.
Brent crude futures dropped by $3.75, equating to a 3.48% decrease, settling at $103.88 per barrel as of 1012 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude fell by $3.33, or 3.25%, to $99.15 per barrel. Earlier in the session, both benchmarks had achieved their highest prices since mid-May.
The initial gains in oil prices were reversed following a report from the Financial Times indicating that foreign ministers from the Middle East were attempting to negotiate a temporary agreement with Iran to facilitate shipping through the Strait of Hormuz. On Thursday, both Brent and WTI had surged by over 6%.
Giovanni Staunovo, an energy analyst at UBS, noted, “Recent headlines about potential new discussions in the Middle East are having a moderate impact on oil prices today.” He added that while there are short-term risks for oil prices to rise, significant price volatility is expected to continue.
Iran claimed responsibility for attacks on ten vessels near the Strait of Hormuz on Wednesday, following U.S. actions against five Iranian oil tankers. The Islamic Revolutionary Guard Corps of Iran stated it would intensify its retaliation if further attacks occurred.
Preliminary shipping data revealed that vessel transits through the Strait of Hormuz decreased to seven on Thursday, down from eleven the previous day, which is notably below the ten-day average of fifteen. Prior to the onset of the Iran conflict in late February, the strait was responsible for approximately one-fifth of the world’s daily oil and liquefied natural gas supplies.
Additionally, Iranian-aligned Houthis took control of Yemen’s Mocha port on Thursday, introducing a new threat to maritime traffic in the Red Sea, while restrictions through the Strait of Hormuz have intensified due to increased tanker attacks in the area.
Analysts have expressed concerns that attacks from Yemen on Saudi energy facilities signify an escalation that could lead to prolonged disruptions across the broader region, extending beyond just Iran and the Strait of Hormuz.
The International Energy Agency has indicated that global oil supply and demand will decline more than previously anticipated this year, attributing this to the lack of progress in resolving the Iran conflict, which is expected to delay a return to normal oil flows in the Middle East until 2027.
In related news, two policymakers from the European Central Bank hinted on Friday at the possibility of further interest rate hikes if the surge in energy prices, driven by the ongoing conflict, continues to exert upward pressure on prices within the eurozone.
Fuel prices have surged due to supply disruptions stemming from the Iran conflict and Ukrainian strikes on Russian refineries. The national average price of diesel in the U.S. surpassed $6 per gallon for the first time on Thursday, as reported by price tracking service GasBuddy.
Tim Waterer, chief market analyst at KCM Trade, remarked, “Refined products, especially diesel, are currently facing a double whammy.” He further explained that as long as shipping constraints in the Gulf and refining outages in Russia persist, diesel and other refined products are likely to experience a more significant upward trend compared to the overall crude market.
In light of these developments, Commerzbank has revised its year-end forecast for Brent crude up to $85 per barrel from $75, while also increasing its jet fuel forecast to $1,230 per ton from $980, and its diesel forecast to $1,200 per ton from $950.
Additionally, China’s state planner announced on Friday that it will increase retail price caps on petrol and diesel starting September 12, raising them by 260 yuan ($38.76) and 250 yuan per metric ton, respectively.
